Wall Street bigwigs appalled at it, struggling American taxpayers applauding it, columnists and blogs making a fuss of it – US President Barack Obama's executive pay cap has created a heat wave of all mixed responses. But that just might be about as much as he can get out it.
Well, the idea of setting a half-million-US dollar compensation limit on Wall Street top executives whose companies receive government rescue money is nice, or as the Financial Service Roundtable put, "a measured response", given the economic difficulties "we are in." The government intervention can be well justified as in many cases government itself is factually the biggest stakeholder.
Banks are now motivated to pay back the government money as soon as possible. JPMorgan and Goldman Sachs have already expressed the intent. Even Kenneth Lewis, CEO of the deeply troubled Bank of America, said Friday that he aims at repaying the fund within three years.
And no need to fear the possible brain drain on the street either – why do we fear to lose the "top notch geniuses?" Aren't they the ones who brought down the Wall Street? With U.S. jobless rate hitting a record 7.6 percent in January, there are bunches of
Financiers seeking jobs out there. The end of the day, half a million is not bad at all – even Obama himself earns 20 percent less than that. And there is still choice of company stocks which will surely surge if the institution can repay taxpayers' money.
But despite being a step in the right direction, the new executive pay rules will not work the magic as many loopholes would limit the effects.
First of all, who will be affected? The US Treasury's statement said banks needing fresh "exceptional assistance" would fall into the category, and the guidelines are not retroactive. That means banks and institutions which have got money from the first half of TARP fund are theoretically not affected at all if they don't come back for more. So, ironically, those Wall Street top executives, whose 18.4-billion bonuses have fueled the call for a pay cap in the first place, can continue to pocket the money as they like.
Besides, the guidelines did not give clear definition of "exceptional assistance", only citing Citigroup, AIG and Bank of America as examples, all three of which had asked for additional bailout money and a government guarantee of their assets. But Citigroup believes it's exempt from this new executive-pay restriction as similar conditions have already been included in the November deal it signed with the Treasury for more aid. And that brings another problem – those who got into bigger trouble and applied for this special assistance earlier can actually get better off. You would not call this fair, would you?
Fundamentally, what is capping this pay cap is that the Obama administration simply set an amount for certain people without touching the entire payment structure. It is the long-existed Wall Street genre, a short-sighted craving for quick profit which encourages people to take extra risk so as to get extra pay and spend at free will, that has led to the financial crisis. It takes more than a symbolic pay cap to clear the root. To name a few, a tax policy that assures redistribution of wealth, a sound regulation system that makes sure no one gets round, and a bunch of smart minds who actually understand the business.
So right now, the executive payment restrictions would more serve as comfort pills to angry public. It is rather more political – as the vast spending proposed by Obama stimulus plan drew growing controversy and the bill still waited to be passed, the timing of a tough play to the financial industry could not have been more right.
(Xinhua News Agency February 7, 2009)